Category: Securities
Court calls a halt to Exxon case against Arjuna
In January, ExxonMobil filed a lawsuit against Arjuna Capital, LLC and Follow This, the two proponents of a climate-related shareholder proposal submitted to Exxon, seeking a declaratory judgment that it may exclude their proposal from its 2024 annual meeting proxy statement. Then, the two proponents notified Exxon that they had withdrawn their proposal and promised not to refile; therefore, they said, the case was moot. But Exxon refused to withdraw its complaint because it believed that there was still a critical live controversy for the Court to resolve. And the Federal District Court for the Northern District of Texas agreed—at least as to Arjuna. While the Court dismissed the case against Follow This, an association organized in the Netherlands, for lack of personal jurisdiction, it allowed the case against Arjuna to proceed on the basis of both subject matter and personal jurisdiction, citing precedent that “a defendant’s voluntary cessation of a challenged practice does not deprive a federal court of its power to determine the legality of the practice.” (For background on this case, see this PubCo post.) According to the Court, the “voluntary-cessation doctrine requires more than platitudes to render a case moot;…to moot Exxon’s claim, Defendants must show that it is ‘absolutely clear’ the relevant conduct ‘could not reasonably be expected to recur.’” But the argument continued, even after the decision was rendered, as Arjuna continued to submit letters to Exxon in which Arjuna “unconditionally and irrevocably covenant[ed] to refrain henceforth from submitting any proposal for consideration by Exxon shareholders relating to GHG or climate change,” and Exxon continued to contend that the letters were not enough. (See this PubCo post.) Finally, yesterday, after a hearing on the matter, the Court called a halt, issuing an Order that Exxon’s claim was moot and dismissing the action without prejudice. But not before the Court got in a few digs at Arjuna, activism and even at the SEC.
What does the Nasdaq board diversity data tell us?
As you know, the Nasdaq board diversity disclosure requirements might be in jeopardy at the moment, as we await the decision of the en banc Fifth Circuit following oral argument in Alliance for Fair Board Recruitment and National Center for Public Policy Research v. SEC. As noted in this PubCo post, the discussion at oral argument seemed to be dominated by rule skeptics. Notwithstanding the possibility that the rules might be overturned—or perhaps because they might be—the folks at Bloomberg Law have used the opportunity to analyze some of the data from those disclosures, offering a glimpse into the current state of corporate board diversity among the over 4,000 Nasdaq-listed companies. What is the bottom line? The authors found that “companies have diversified their boards in part by predominantly hiring white women—meeting the rule’s gender-based requirements—but falling short when it comes to other demographics.”
Commissioner Uyeda calls for development of guiding principles for foreign company disclosure requirements
Are the regulations applicable to foreign companies in for a reassessment? You might draw that conclusion from reading the remarks from SEC Commissioner Mark Uyeda at the Harvard Law School Program on International Financial Systems, 2024 U.S.-China Symposium last week. Uyeda observes that, from its earliest days, the SEC has “recognized the unique nature of foreign companies accessing the U.S. capital markets, and its rules have afforded different treatment to foreign companies,” such as different forms for registration and reporting. But more recently, the SEC has applied several of its rules equally to domestic and foreign companies, an approach that, in Uyeda’s view, is inconsistent and suffers from the absence of a “clearly articulated regulatory philosophy.” He advises that the SEC should step back and undertake a more comprehensive review with a view toward the development of guiding principles—a “philosophy for when disclosure by foreign companies should be equivalent to disclosure by U.S. companies.” In particular, he advocates that the SEC reexamine the definition of “foreign private issuer”: while a test based on ownership and management may have made sense in 1983, does it still “reflect the realities of today’s global capital markets, corporate structures, and business practices”?
What happened with no-action requests this proxy season?
According to “SEC No Action Statistics to May 1, 2024” from the Shareholder Rights Group, this proxy season, the SEC staff “has nearly doubled the number of exclusions” of shareholder proposals compared with 2023; that is, relative to the prior year, the staff has issued almost twice the number of letters indicating that it would not recommend enforcement action if the company excluded the proposal from its proxy statement. While that surge reflects primarily a “sharp increase” in the number of requests for no-action filed by companies, importantly, the article indicates that it also reflects an increase in the relative proportion of no-action requests granted. From November 1, 2023 to May 1, 2024, the article reports, the SEC has granted company requests for no-action regarding shareholder proposals about 68% of the time (excluding requests withdrawn), compared with 56% at the same point last year. Notably, the article reports, that percentage (68%) is fairly comparable to the average exclusion rate (69%) during the prior administration (2017 to 2020). Since the issuance of SLB 14L in 2021, the staff has come in for criticism for applying a revised approach to evaluating no-action requests that some market participants considered perhaps a bit too generous to proponents of proposals, leading to an excess of overly prescriptive proposals presented at shareholder meetings. As the article suggests, has this criticism led to a moderation of that approach?
NRDC and Sierra Club seek exit from SEC climate disclosure litigation
You might recall that the litigation over the SEC’s climate disclosure rules (see, e.g., this PubCo post) was not limited to those, like the Chamber of Commerce, Liberty Energy and the State of Iowa, challenging the SEC’s authority to adopt the rules, but also included some environmental groups—the Sierra Club and the Natural Resources Defense Council—which affirmed the SEC’s authority, but contended that, in rolling back the proposal, the SEC had “fallen short of its statutory mandate to protect investors.” In particular, they were disturbed by the removal in the final rules of requirements to disclose Scope 3 emissions. (See this PubCo post.) Now, both the NRDC and the Sierra Club have moved to voluntarily dismiss their petitions for review..
Fix your data tagging!
In this announcement, the SEC’s Office of Structured Disclosure advises that many of us have been tagging our basic and diluted earnings-per-share data incorrectly. The announcement indicates that this data should be tagged using GAAP Financial Reporting taxonomy elements “us-gaap:EarningsPerShareBasic” and “us-gaap:EarningsPerShareDiluted.” That’s true even where the numbers for basic and diluted EPS are the same number and are presented only once on the face of the income statement. In that case, the company “should tag that amount twice using both tags.” Why is this important? Because, according to the announcement, “[i]ncorrect tagging for EPS would negatively impact the usability of the data.” For example, in the case where the company tags the data only once, either the basic or diluted EPS information would be lost.
Exxon persists in battle against Arjuna
When we last checked in on the ExxonMobil litigation against Arjuna Capital, LLC and Follow This—in which Exxon sought a declaratory judgment that it may exclude the two defendants’ proposal from its 2024 annual meeting proxy statement—the Federal District Court for the Northern District of Texas had just dismissed the case against Follow This, an association organized in the Netherlands, for lack of personal jurisdiction, but allowed the case against Arjuna to proceed on the basis of both subject matter and personal jurisdiction. (For background on this case, see this PubCo post.) The two proponents had contended that, because Arjuna and Follow This had withdrawn their proposal and promised not to refile, there was no live case or controversy. As a result, they asserted, Exxon’s claim was moot, and the Court had no subject matter jurisdiction. However, the court held that Exxon had the “winning argument,” citing precedent that “a defendant’s voluntary cessation of a challenged practice does not deprive a federal court of its power to determine the legality of the practice.” According to the court, the “voluntary-cessation doctrine requires more than platitudes to render a case moot;…to moot Exxon’s claim, Defendants must show that it is ‘absolutely clear’ the relevant conduct ‘could not reasonably be expected to recur.’” After the decision was rendered, Arjuna submitted a letter to Exxon in which Arjuna “unconditionally and irrevocably covenants to refrain henceforth from submitting any proposal for consideration by Exxon shareholders relating to GHG or climate change.” End of story? Not quite.
Exxon court challenge to Arjuna shareholder proposal survives dismissal [updated]
You may recall that, in January, ExxonMobil filed a lawsuit against Arjuna Capital, LLC and Follow This, the two proponents of a climate-related shareholder proposal submitted to Exxon, seeking a declaratory judgment that it may exclude their proposal from its 2024 annual meeting proxy statement. Then, the two proponents notified Exxon that they had withdrawn their proposal. End of story? Hardly. In a status update filed in February, Exxon explained that it would not withdraw the complaint because it believed that there was still a critical live controversy for the Court to resolve. Arjuna and Follow This both moved to dismiss the case for lack of personal and subject matter jurisdiction. The Federal District Court for the Northern District of Texas has just issued its opinion: the Court dismissed the case against Follow This, an association organized in the Netherlands, for lack of personal jurisdiction, but the case against Arjuna survives on the basis of both subject matter and personal jurisdiction. Arjuna has now responded by letter. However, this conflict isn’t just about Exxon and two small activist shareholders. It has taken on much larger proportions: some business groups have joined with Exxon to bemoan the “hijacking” by special interest groups of Rule 14a-8 to “advance their preferred social policies” and “inundate public corporations with proposals designed to push ideological agendas.” Others have questioned whether, under the First Amendment, the SEC, through Rule 14a-8, has the right to compel companies to use their proxy statements to speak about contentious political issues. On the other side, some investors lament Exxon’s “aggressive tactics” that threaten to “diminish the role—and the rights—of every investor.” Stay tuned on this one.
Nasdaq proposes rule changes related to phase-ins and cure periods
Nasdaq has proposed to modify some of its corporate governance rules—specifically Rules 5605, 5615 and 5810—to modify the phase-in schedules for the independent director and committee requirements in connection with IPOs, spin-offs and carve-outs, bankruptcy and other specified circumstances and to clarify the applicability of certain cure periods.
Here comes T+1
In 2023, the SEC adopted a number of new rule amendments intended to reduce risks in the clearance and settlement processes, including, significantly, a change that will reduce the standard settlement cycle for most broker-dealer transactions in securities from T+2 to T+1, that is, from two business days after the trade date to one business day. Among other things, the rule changes also shorten the settlement cycle for firm commitment public offerings priced after 4:30 p.m. Eastern Time from T+4 to T+2, unless the parties expressly agree otherwise at the time of the transaction. (See this PubCo post.) According to the press release issued at the time, the final rule was “designed to benefit investors and reduce the credit, market, and liquidity risks in securities transactions faced by market participants.” The compliance date for the rule is now upon us—May 28, 2024. Yep, that’s right after this Memorial Day holiday.
You must be logged in to post a comment.